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Intraday trading strategies

17 Sep 2022 0 COMMENT

Introduction

You can make profits from the stock markets in several ways. For example, you can take the delivery of stocks and sell them at your convenience. Or else, you can sell and purchase stocks on the same day itself. This type of trading is known as intraday trading.

Intraday trading is a great way to make significant profits in a short period. It also allows you to trade a large volume of shares with a little capital by using the leverage provided by stockbrokers.  Margin trading allows you to trade more stocks than you can afford by leveraging money from your stockbroker.

So, it’s crucial to remember that intraday trading is riskier than regular stock market trading. Therefore, a beginner should first gain an understanding of the best intraday trading strategies to avoid hefty losses.

Five intraday trading strategies

Below are the intraday trading strategies that you can use to make financial gains:

Momentum strategy

As the name suggests, this strategy is based on making the most of the market momentum. A momentum is formed when the market follows a particular trend with stocks going upward or downwards for a prolonged period.

In this strategy, the role of an intraday trader is to identify the market momentum, pick the right stocks, take accurate positions, and then exit those positions before the trend or momentum changes. Based on the market direction’s speed and technical analysis, you can hold your positions for a few minutes, hours, or the entire day.

To use the momentum strategy for intraday trading, you need to keep an eye on market news, such as the announcement of takeovers, quarterly earnings, technical charts, etc., and make quick decisions accordingly.

Breakout strategy

The breakout trading strategy involves identifying the stocks that have broken out of the territory in which they usually trade, and taking active intraday positions in such stocks.

You can take a short position in a stock that has gone below the threshold range in which it usually trades. Similarly, you can take a long position in a stock that has risen above the threshold range in which it usually trades.

The fundamental belief behind the breakout trading strategy is that if a share breaks or crosses its threshold points during a day, that trend is more likely to continue for a significant period.

Reversal strategy

A reversal trading strategy involves high risks, and hence, you should avoid this if you’re a beginner in intraday trading. In this strategy, a trader makes trading decisions by going against the market trends. He or she believes firmly in his or her calculations and technical analysis and takes positions accordingly.

For example, if there is an ongoing bullish trend in the market, but your analysis suggests that the market can fall, you can take short intraday positions irrespective of the current market trend.

However, to use the reversal trading strategy for intraday trading, you need to have extensive knowledge of the market and know how to conduct a technical analysis of stocks. Compared to other intraday trading strategies, this strategy is a bit more difficult.

Scalping strategy

The scalping strategy is the best intraday trading strategy for beginners. It involves making financial gains from very small price movements and exiting the markets. While using the scalping strategy, an investor enters the market with a small target and a stop loss and then exits the market as soon as his or her target or stop loss is hit. Scalping is usually done for a very short time horizon.

A scalping trading strategy involves lesser risks. However, one disadvantage of using this strategy for intraday trading is that you may incur high transaction charges.

Moving average crossover strategy

If a stock trades above or below its moving average line, it indicates that there is a change in the market trend. Stocks that trade above their moving averages are in an uptrend, and stocks that trade below their moving averages are in a downtrend.

The moving average crossover strategy involves identifying the stocks that are trading above or below their moving averages and taking intraday positions accordingly.

To conclude

These are the most common intraday trading strategies you can use. The key to successful intraday trading is identifying the right stocks, making quick decisions, and accurately analysing market movements.

 

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